Medicare spending on post-acute care has exploded in the past decade, catalyzing intense policy interest in strategies to reduce post-acute expenditures without harming health or increasing the offsetting costs of other health services. Under the traditional Medicare benefit design, the first 20 days of skilled nursing facility care and all episodes of home care are provided free (i.e. without a copayment), raising concerns about patients' incentives to overuse these services, even when they are of little or no value. To address this concern President Obama, the Medicare Payment Advisory Commission, and the Simpson-Bowles deficit reduction committee have all expressed support for the imposition of a copayment for the use of post-acute care. Yet, there is no empirical evidence base to predict, the impact of such policies. The objective of this proposal is to evaluate the impact of changes in cost-sharing on the use and outcomes of post-acute care using a quasi-experimental research design and a national sample of Medicare enrollees in managed care plans. The central hypotheses of the proposed research, which is based on the results of an extensive series of preliminary studies, are that copayments will sharply reduce the use of post-acute care, induce shifts to other post-acute services with lower out-of-pocket costs, drive hospitalized beneficiaries out of managed care plans into the fee-for-service system, and increase hospital length of stay and the probability of readmission. Our expectations are that this project will provide rigorous estimates of the response of Medicare beneficiaries to post-acute copayments and contribute significantly to our understanding of the effect of cost-sharing among the elderly, who were excluded from the landmark RAND Health Insurance Experiment conducted in the 1970's: Finally, this research can inform optimal Medicare benefit policies that promote better health outcomes and the appropriate use of post-acute services while minimizing negative unintended consequences for frail elderly and the Medicare program budget.